Heiner Flassbeck – Spain’s GDP: growing and growing and growing?

What looks big is sometimes less big than you think if you look more closely. Spain’s gross domestic product could well be such a pseudo giant. Why it is growing at such an incredible rate is a big mystery that nobody seems to be interested in this, in Spain – or the EU.

Recently the Financial Times brought a great story about Spain’s amazing economic success. Spain is seen as the European locomotive of economic growth, because it is also the country that appears to shrugging off the recent economic slump in Europe and simply continues to grow and grow. All the statistics presented by the Financial Times, however, are based on GDP.

In terms of unemployment, Spain is far less successful than in terms of gross domestic product. According to official figures, while the latter has now been increasing over a number of years from quarter to quarter with impressive consistency and at least 0.6 percent (compared to the previous quarter, which leads to growth of around 2.5 percent year after year), the reduction in unemployment is progressing rather slowly. In January this year, the officially measured unemployment rate was still close to 15 per cent.

Friederike Spiecker and I had already pointed out in 2015 that Spanish GDP – unlike the Greek GDP – had surprisingly fallen only slightly in the face of the sharp rise in unemployment and the massive slump in industrial production after the beginning of the Euro crisis. Is there a systematic bias in Spanish GDP? Is this being glossed over? A few weeks ago (using Germany as an example), we pointed out that the calculation of GDP is not a statistic, but a method of calculation that should, however, be largely based on primary statistics.

Spain as a special case?

A very simple comparison shows how problematic the Spanish calculations are. For almost all European countries, only very limited statistical data are available so early that they can actually be used to calculate GDP in a quarter, which is usually presented by the offices about six weeks after the end of the quarter. In most countries, production in industry, construction, and retail trade turnover for the quarter under review are the only sources available at this early stage. In the case of retail trade, however, it should be borne in mind that these are only turnover figures; the value added behind them, which should be the only one included in the GDP calculation, is certainly correlated with turnover, but is much smaller.

For four countries (Germany, France, Italy and Spain) we compare the development of the three primary statistics mentioned and the GDP calculated by their statistical offices. The first four graphs (Figures 1 to 4) show the corresponding variables for each country, while Figures 5 to 8 show one of the four indicators for all of the four nations.

Graph 1

Development of construction production, industrial production, retail trade, and the real GDP in Spain

Graph 1 shows that in Spain GDP growth since 2016 has clearly exceeded the three indicators from primary statistics. In Germany, on the other hand, GDP is relatively close to industrial production, which is by far the most important indicator. The small deviation at the end (industrial production declines, GDP stagnates) was reason enough for us to speak of a problematic calculation. In Spain, GDP has now been completely detached from industrial production since the beginning of 2018. And construction production in Spain is now extremely far removed from GDP numbers.

Graph 2

Development of construction production, industrial production, retail trade, and the real GDP in Germany

Also for France and Italy (Graphs 3 and 4), GDP is between the figures from primary statistics. In France also quite close to industrial production; in Italy exactly between industrial and construction production.

Graph 3

Development of construction production, industrial production, retail trade, and the real GDP in France

Graph 4

Development of construction production, industrial production, retail trade, and the real GDP in Italy

In the following figures (five to eight) we have listed all four variables for a country from the first quarter of 2016 to the last (fourth quarter of 2018). Graph 5 shows construction output, where Spain lags far behind the others in this period.

Graph 5

Development of construction production in Spain, Germany, France, and Italy

Graph 6 shows industrial production since the first quarter of 2016, where Spain is in the midfield.

Graph 6

Development of industrial production in Spain, Germany, France, and Italy

Spain is also not at the top in the retail sector, but only ahead of Italy in third place.

Graph 7

Development of retail trade in Spain, Germany, France, and Italy

But then comes the GDP (Graph 8) and behold, as if by a miracle, Spain is clearly in the lead here. It appears to be growing at an extremely steady rate, largely unaffected by actual indicators. Even the recent Europe-wide slowdown, which can also be clearly seen in Spanish industrial production, “apparently” has no impact on Spanish GDP, while the other three countries clearly show a reaction in their GDP.

As I have already pointed out, this result cannot be relativised by referring to other sectors such as tourism, which is not listed here. For the calculation of the quarterly results, there are almost certainly no recent results available in Spain either, so that we are talking about the existing time periods mentioned – or about fantasy.

Graph 8

Development of GDP in Spain, Germany, France, and Italy

Who controls the statistical offices?

Here, too, the question arises which we have already raised several times, i.e. the control of the statistical offices in calculating the national accounts. Such a paradoxical result would have to be taken up at European level by the EU Commission and publicly questioned. The EU Commission employs large staffs of economists and statisticians, who, however, are obviously not free to express their opinions clearly and regardless of political sensibilities. Consequently, independent scientists and statisticians would have to be commissioned to check this result and make the results public.

The extremely problematic Spanish national accounts have enormous political repercussions, because Spain is repeatedly referred to as a European model case. It seems as if the country, despite compliance with all stability criteria, has undergone a fabulous development that could serve as a model for others. If this is not the case, the pressure on the others to think about revisions to the economic policy will be much greater.

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